Another earnings season is upon investors and it looks to be the brightest in several years. But the question in the week ahead is, will it be enough to satisfy investor optimism?
Heading into the beginning of the third-quarter reporting period, the S&P 500 stock index is hovering near new highs. Expectations are high for profits, and for strong profit forecasts.
According to FactSet Research, profits for S&P 500 companies is predicted to grow by more than 19 percent compared to a year ago. That would make the third quarter the strongest quarter for corporate profit growth since early 2011. The energy sector likely will produce the strongest earnings growth driven by oil prices, which were up 50 percent this summer compared to last year.
Just behind the pop in energy profits is the financial sector. Insurance company earnings improved thanks to a relatively calm third quarter. The destruction left behind last month by Hurricane Florence notwithstanding, last year’s Harvey, Irma and Maria devastated the communities they hit and cost the insurance industry billions of dollars. The financial reality is that those costs a year ago help insurance profit growth this year.
Big banking stocks have lagged the overall market this year. Worries about a trade war, higher interest rates, and even a “blue wave” this election cycle have held down bank shares. Investors will begin hearing from banks like JP Morgan, Citigroup and Wells Fargo when that trio reports their latest quarterly results on Thursday.
Just as important as what companies report about the quarter that was is what they say about the quarters that will be. Those forecasts now have to account for the highest interest rate on the benchmark 10-year Treasury bond in over seven years. For banks, higher bond yields can lead to higher borrowing costs fop their customers, leading to higher profits for their shareholders.
Tom Hudson hosts “The Sunshine Economy” on WLRN-FM; @HudsonsView.